This is an urgent alert for all UK first-time buyers. If you don’t get the keys by 25 March 2012, you will miss out on the stamp duty holiday.
If you are buying a house worth £125,000 or more you will save £1,250 if you complete the transaction within the next two months.
The stamp duty holiday was introduced by the government to encourage first-time buyers into the housing market. It ends on 25 March this year but I’m not sure why help for first-time-buyers it is any less urgent now than it was in 2010.
The property market in most areas is still very sluggish and first-time-buyers are struggling to get a foot on the ladder. First-time buyers are an endangered species and I will try to set out, today, what options they have.
The major problem for a first-time buyer is the deposit. The average deposit, UK-wide is 21% of the purchase price.
If you are buying a house valued at £125,000 this means you will need a deposit of around £26,250.
Currently, the headlines that you read suggest that high loan to value mortgages are no longer available. Actually, they are available but the devil is in the detail.
The more you borrow in relation to the value of your property (loan to value or LTV), the higher the rate of interest you will pay.
For instance, the Bank of Scotland is currently offering a 90% loan, two-year fixed at 5.99%, whereas their 80-85% offering is at 3.89 %. The Clydesdale Bank offers something similar but there are lower and higher rates available in the market.
There are various incentives and fees which complicate the issue but what I am trying to show is that, when you strip away the marketing hype, the higher the percentage loan, the more you will pay over the period of the mortgage.
You might ask why this is the case.
The answer is simple – it’s a question of risk. Banks are now risk averse. They calculate that if you borrow a higher percentage, you are more likely to stop paying.
Sadly, as we all know, from the example of Northern Rock who used to lend 110%, they are right. Banks, globally, now have huge amounts of bad loans on their books.
So, where does the first-time buyer start? For some, they have the joy of the Bank of Mum and Dad. If not, it is hard graft and savings.
Once you have a reasonable deposit, there is then the mortgage maze to negotiate.
Naturally, you might wish to consider an adviser. There are, generally, two types of adviser, those who will look at the whole market and those who will only sell you their company products.
The upside of a whole market adviser is that he or she will have passed exams, have experience and will have sophisticated tools for checking the latest rates.
The downside is that they require payment. Whilst generally, they will be paid commission by the lender, this may lead to the possibility that they will not introduce you to lenders who don’t pay commission. The solution is for you to pay a fee, if necessary.
On the other hand, the adviser who is tied to his or her Bank’s products will have passed exams and be free of charge to consult but you will have to compare the market yourself. No easy task.
Once you have found the mortgage product that you like, you will then have to go through the application procedure.
Whereas some years ago lenders boasted that from application to grant would take two or three days, these days they are so worried about risk and mortgage fraud that they demand huge amounts of information about you and the process can take a considerable time and varies from bank to bank.
If you have a particular house in mind, it is worthwhile to “note your interest” at an early stage with the selling agent as that makes it more likely that you will be consulted if an offer is made for the property.
Making an offer subject to mortgage is possible but unlikely to be met with great enthusiasm by the seller.
Nevertheless, you should consult your solicitor at an early stage because sellers, in the current absence of many buyers, are becoming rather more amenable to considering such offers!
And there is an upside. Buyers are few and far between and you may well be able to drive a hard bargain. The price on the ticket is not necessarily the price you will pay. Your first home may cost less than you think.
Remember, the stamp duty holiday for first-time-buyers ends on 25 March 2012. You have two months – get moving!
Health warning: I’m not a financial adviser, this is not financial advice nor a recommendation and figures are illustrative only.